The latest scheme to make the Wall Street fat cats even fatter (with our money, of course), courtesy of their friends at the Federal Reserve:
“During the financial crisis, it [the Fed] bought hundreds of billions of dollars of real-estate loans and securities from banks to reduce mortgage rates and ease the pressure on bank balance sheets. This, in turn, pumped hundreds of billions of new dollars into the economy, which has helped the banks–and bankers–to make a killing over the past year.
The banks are, however, lending to the federal government [the current 30-year T-bill rate is about 4.5%] which needs to fund record deficits by borrowing more than $1 trillion a year. Banks are also collecting interest–currently 0.25% a year–on the $1 trillion or so of “excess reserves” that they aren’t lending to anyone.”
…The idea behind giving the banks cheap money was that the banks would lend it to consumers and businesses. Unfortunately, that hasn’t happened: Since the start of the crisis, bank lending has fallen off a cliff.
(“Excess reserves” are the amount above the percentage of their assets that banks are required to keep at the Federal Reserve.)
“The Fed’s exit plan will call for increasing this interest rate, to encourage the banks to keep more money in excess reserves instead of lending it into the economy and thus expanding the money supply.
It’s a great time to be a banker.”
…Of course, in the process of increasing interest paid on reserves, the Fed will be paying banks even more not to lend. In the process, it will be giving banks yet another way to take nearly free money from the taxpayer and give it back to the government at a higher rate–and then pocket the difference.
Kudos to the Senate for confirming Ben Bernanke to another 4-year term as chairman of the Fed. Wall Street is very appreciative, as I’m sure will be reflected in future (ahem) “campaign contributions.”